50 Year Low for Canadian Interest Rate

The Bank of Canada announced today a drop in the interest rate to 1.5% which is the lowest in fifty years to 1.5 per cent this morning. The mark also represents the first time since the global economic slowdown began in September that the central bank has stated Canada is in a recession.

However, the lower Canadian dollar is one factor that has helped offset the negative effect, making Canadian products cheaper on the global market. The statement also pointed to the possibility of further interest rate cuts, and said measures taken by major governments around the world are beginning to thaw frozen credit systems.

The Bank of Canada’s next update on the economy and inflation will be delivered on Jan 22, just before an expected Federal budget.

Our CIBC has RAISED their prime lending rate by a full one per cent on line of credits, so this does NOTHING for consumers! They pulled the same stunt with mortgages last time around. TD on the other hand dropped theirs. Although remember, these rate drops are for the banks lending between themselves.

Eventually other banks will follow suit. lowering interest rates should help the economy by encouraging development and housing (through lower costs of borrowing).

Impact on the CDN Dollar

This also means the Canadian dollar will in the short run decrease. Why? With lower interest rates investments such as bonds look less attractive to foreign investors so there is less demand or Canadian currency and therefore the currency depreciates. The CDN dollar was down 1 cent after the Bank of Canada said the country is entering a recession and cut its main interest rate by three-quarters of a point to 1.5 per cent.

The loonie moved down 1.06 cent to 78.68 cents US after the central bank cut its key rate to the lowest level since 1958. The central bank’s decision came against a background of negative economic data — most recently a loss of 71,000 jobs in November and a 19 per cent one-month drop in housing starts to a seven-year low.